Tsogo to roll up its sleeves
Tsogo Sun will reclaim its role as manager, as Marriott ditches three iconic SA hotels in the worst of times
ý The small town of Magaliesburg near the Magaliesberg mountain range went into a panic on news that the Mount Grace Country House & Spa was going to close.
But it turns out that Marriott International was simply walking away early from its lease to manage the hotel, while Tsogo Sun takes over the management of the hotel it actually owns, along with two others.
The international hotel management company also ditched its contract to manage the Protea Hotel Hazyview in Mpumalanga, as well as the Protea Hotel Durban Edward as the impact of Covid-19 continues to wreak havoc on the leisure industry.
All three are iconic in different ways.
Mount Grace is one of the largest commercial enterprises in Magaliesburg and is a popular destination for conferencing during the week, weddings and weekend getaways with its close
country and in March announced the opening of the first purpose-built Marriott hotel.
Von Aulock says big chains “don’t really make a difference with many of the foreign bookings coming through our direct marketing efforts in those markets, destination management companies like Tourvest or online travel agents like booking.com.”
Tsogo also took over management of the Arabella Hotel, Golf & Spa in Hermanus from Marriott in March this year.
“We’ve just been a landlord to these hotels. Now we need to get in there and understand how they run,” he says.
But it will be some time before they open. Tsogo had to close its 103 hotels in three days at the end of March because of Covid-19.
Only about 30 hotels are open at present, but with very low occupancy.
He says local hotels might be able to open this year for the domestic market in tourist
Target price: Potential upside: nodes such as Umhlanga, but it’s unlikely the summer season will be saved.
Tourism is not expected to gain momentum until flights are normalised and unrestricted interprovincial travel is permitted again, and local operators will have to wait for 2021 to see any meaningful pick-up in foreign travel too.
As for the hotels it has opened — like some regional hotels in Kimberley and Polokwane — Tsogo says: “It’s a toss-up ... if you open too early, you increase your cash burn. If you open too late, you lose money for not operating.” In the larger metros, Tsogo has opened up only one hotel in each major city. In Johannesburg that’s the Sandton Sun, in Durban it’s the Marine Parade and in Cape Town, it’s the Stayeasy Cape Town City Bowl.
Von Aulock expects the full portfolio to be open within 12-18 months.
Unsurprisingly, the entire industry is now scrambling for cash.
Tsogo Sun last month recorded
* Based on analysts’ consensus forecast
R1.7bn in exceptional losses for the full year ending March 2020. Overall, Tsogo’s loss was R1.225bn for the period, from a small profit of R46m last year.
While Von Aulock says Tsogo has adequate liquidity for the medium term, competitors like City Lodge and Sun International are more fragile.
City Lodge has been forced into a R1.2bn rights issue to settle debt problems — equivalent to its market capitalisation — as it fights off cash flow challenges because of the Covid-19 pandemic.
Sun International is also raising R1.2bn from the market, in the face of a R1.5bn offer for a controlling stake in the business from Chilean investment house Nueva Inversiones Pacifico Sur.
Sun has panned the unsolicited bid as an opportunistic tilt through the media, given that no firm offer has actually been made.
In the meantime, it has to cut 1,800 jobs and is looking to sell land too, to deal with the effect of the pandemic on its business.
Mount Grace: One of the largest commercial enterprises in Magaliesburg Mount Grace chalets: A popular destination
The Edward: 111 years old